By Anita du Toit, Managing Director at Franchise Fundi
Many entrepreneurs consider franchising as a smart way to expand their business and build a national or even an international brand. Whatever your ambitions, the road to franchising your business demands patience, planning and capital.
Franchising is a legal and business model that allows entrepreneurs like you to achieve multi-unit growth and expansion. If done correctly, franchising is a powerful tool to expand your business. Like any other business model, franchising has its advantages and disadvantages. The advantages include expanding using external capital and a potential high return on your investment. The disadvantages include letting go of some control and the risk that you may select the wrong franchisees.
Is my business franchiseable?
Many great businesses are not franchiseable. This is because they do not meet the critical success factors that are required for successful franchising. Franchising is not just about licensing a concept. You need to have an existing business with a great track record, and you must be able to verify that the business concept is sound when you, the entrepreneur, do not operate the business.
Here are the critical success factors that you need in place in order to consider franchising:
- Do you have a successful and profitable business?
- Do you operate in a growing market?
- Do your products and services demand a premium price?
- Are your margins sufficient to cover the ongoing management service fees?
- Do you have a strong and memorable brand?
- Are there substantial barriers to entry?
- Do you have systems and procedures in place?
- Is it relatively easy to transfer the skills required to operate the business?
- Can you fund the development of the franchise concept?
- Do you have the resources and time to support new franchisees?
Could you be a franchisor?
Not every business owner is suited to being a franchisor. It demands the right mindset – you must be passionate about your franchisees’ success. Once you become a franchisor, your focus and daily activities will shift significantly. Your focus will be on recruiting and interviewing prospective franchisees, supporting your franchise network and marketing the brand for further expansion.
Here are some questions to reflect on before you embark on your franchising journey:
- Are you good at setting and explaining a vision for the business?
- Do you enjoy sharing your business methods and know-how?
- Will you be comfortable letting go of some control?
- Are you committed to franchising as a long-term business strategy?
- Are you an effective communicator with great listening skills?
- Do you have the patience to grow slowly through selecting the right franchisees?
- Do you keep ahead of trends in your industry?
Capital required
Franchising your business demands an investment of your time and money. Firstly, we recommend conducting a Franchise Feasibility Check Key to determine whether your business is franchiseable.
Secondly, your investment in franchising should include running a ‘pilot franchise’, to iron out any potential problems and demonstrate to prospective franchises that they can operate a successful business using your tried and tested systems.
Thirdly, you will need to develop a comprehensive franchise operation manual. This important document details all aspects of the business system and intellectual property; essentially everything needed to fast track the franchise’s journey to success. The operations manual is essential because it ensures uniformity of customer experience and quality control across different sites. This tool is also used to train new franchises.
There are several other costs that you may incur when developing your franchise concept. These may include consulting with an accountant to create financial models or working with a good designer to refine your corporate identity. You also need to register your trade name and trademark to protect your brand. Finally, you will probably need to hire franchise support staff who will be dedicated to training and communicating with your franchisees.
Legal requirements
Getting expert legal advice is critical during the franchising process. Ideally, you should work with a lawyer who has experience in the franchise industry. There are three legal documents that you will need before you start promoting your franchise opportunity. The first document is a non-disclosure agreement (NDA) which a prospective franchisee will sign before any confidential documents are shared. The second is a franchise disclosure document outlining the business opportunity to a prospective franchisee. The third document is the franchise agreement that will govern your legal relationship with a franchisee.
Is professional franchising advice necessary?
Many franchisors regret franchising their business concept without professional support. The right advice from an experienced franchise development consultant can mean the difference between successful expansion and a business nightmare. The first step involves helping you to decide whether franchising is right for your business. If yes, a franchise consultant will guide you to develop your franchise business model, set up your pilot franchise, compile key franchise documentation and even assist with franchisee selection.
Take the first step
Considering franchising your business? Get in touch with Franchise Fundi (hyperlink to contact page) to discuss whether your business has franchise potential and how to go about franchising your business the right way.
